I am seeking a quantitavely and logically satisfying answer to the question I will outline below. It could be in a form of a book/article reference and ideally have as little ideological bias as possible.

What are the macro- and micro-economic factors (if any) that contribute to the (perhaps only apparent) wage disparity and disparity in the 'financial quality of life' in different countries? By 'financial quality of life' I mean how much goods one can buy with their disposable income. I specifically want to focus on people in low-paid jobs.

Let me sketch out what I mean with an example. Suppose John lives in a fairly large city in the UK (let's take Glasgow for instance). John is a young adult (say 25yo) in perfect health, but has no formal qualifications, no family, no savings and does not own a property. He starts a full-time job as a waiter/barista at a local pub/cafe chain. His hourly wage is £10 (the official minimum wage is about to increase to £8.21 and let's say his employer is a bit more generous). He works 40 hours per week, so his avarage monthly earnings is about £1700 (4 weeks plus a bit). His yearly income tax works out as £1710, so about £140 per month. He rents a cheap one-bedroom property in a slightly run-down area of Glasgow (but within walking distance to a subway station) for £500 per month. With all the bills and council tax and a subway pass let's say it all adds up to £750. This leaves him with about £800 of disposable income.

Now imagine his Polish counterpart, Jan, living in Warsaw. Assume their circumstances are identical. As a barista, Jan can expect to earn about 15PLN per hour after tax (~£3/h), so his monthly take-home pay is about 2600PLN. He might be able to find a small one-bedroom apartment in a remote area of Warsaw (but with a bus connection) for about 1200PLN, so let's just assume that all his housing and commuting related expenses round up to 1500PLN. It leaves him with about 1100PLN of disposable income (~£220). [note that this is a generous description, reality can be harsher]

What is most striking, however, is that many of the goods that can be bought with their disposable income are very similarly priced in both countries. Let's take groceries. A discount chain Lidl operates in both countries and offers very similar prices on many of the everyday life products. Let's take coffee. A large Americano at Starbucks in the UK costs roughly £2.50, and a large Amercino at Starbucks in Poland costs about 13PLN (~£2.20). Similar things can be said about beer prices in pubs, fast-food chains, takeaways, but also gym memberships, holidays, etc.

Are there any nicely laid-out and well-understood ideas in Economics that explain such disparities? I can think of two ideologically-charged: a 'leftist' would argue that it is due to legislation about workers rights and the greed of employers. Is it simply true that, say, a Starbucks chain in Poland earns more money than in the UK due to lower labour costs? Why is Starbucks (or Lidl) not significantly cheaper in Poland than in the UK? On the other hand, one can also argue that it is a simple consequence of the disparity of GDP per capita in these countries and that once Poland catches up with the UK, things will naturally improve. Likewise, one can refer to the fact that London is an international finance centre and this brings in a lot wealth that then 'trickles down' to the rest of the country.

I can see some merit in both explanations and I appreciate that there are no definite answers here. Are there any books/articles that discuss this in a logically rigorous way? There is a number of interesting thoughts to be explored here. What would happen if a much higher minimum wage was introduced in Poland? What would happen if the minimum wage legislation in the UK would be scrapped? Are there any negative side-effects to the situation in the UK? What is the quickest way for Poland to reach the quality of wages the UK currently enjoys? Of course the example of the UK and Poland is arbitrary. One can compare the UK and US as well and so on. The more general the analysis, the better. Many thanks for any comments you might have!

  • $\begingroup$ Economy is never as simple as business only, it also involve social-politics and also human psychology. I suggest you find something like "Undercover Economist" to learn how Starback deal with the price. “Land and the Ruling Class in Hong Kong” is a good book on how a government help and making oligarch by practicing neoliberalism free cannibalism market economy. Famous Karl Marx scholar David Harvey have argue that minimum wages alone is a bad policy. $\endgroup$ – mootmoot Mar 18 '19 at 17:44
  • $\begingroup$ Is your question more simply, "Why do the real wages of similarly-skilled workers differ across countries?" $\endgroup$ – user18 Mar 23 '19 at 4:42
  • $\begingroup$ What exactly is the alleged disparity here? The allegation appears to be that consumer prices are similar and real wages are not, but it's very unlikely that somebody ostensibly on a quarter of the British wage is spending money on overpriced gym memberships and coffees, and so a comparison in the price of these specific things would be irrelevant, and we would have to identify the cost of products that they actually do buy. For example, are they satisfied with brewing their own instant coffee at work using a kettle? $\endgroup$ – Steve Mar 2 at 21:04

Labour theories of value following the Marxist model of socially necessary skill averaged labour can explain why commodities locally produced and consumed have similar proportional hours of labour income costs. This also explains why highly mechanised products have prices varying between markets.


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